In Defense of the Foundation

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What a difference a decade makes. When Inside Philanthropy first got up and running, we took it as a matter of course that most of our focus would be on foundations — that is, private foundations, mostly set up for perpetuity, offering mostly project support and abiding by the well-worn legal framework set in place by the Tax Reform Act of 1969. Although most foundations in the U.S. are modest in size, we also expected bigger staffed foundations to loom large in our coverage.

Fast-forward to 2023. Today, U.S. donors are committing more to donor-advised funds than they are to foundations, while apex givers like MacKenzie Scott are leading the philanthropic news cycle with no foundations at all. The philanthropic LLC is fast becoming a preferred vehicle for the uber-wealthy, offering more flexibility and less accountability.

Setting aside the troublesome regulatory gaps that we’d like to see closed — of which there are several — some of today’s most exciting philanthropy is taking advantage of these new vehicles. The obvious example is Scott’s Yield Giving, but there’s a whole new field of lean, fast-moving projects that use these structures to combine charitable giving, impact investing, advocacy, and electoral work, often running circles around their predecessors. The staffed foundation, meanwhile, with its relative footprint shrinking by the day, finds itself in the unenviable position of being written off as a dinosaur.

That’s not to say the foundation era is over. Far from it. Most of the nation’s charitable resources still lie in foundation endowments, and while legacy institutions like Ford, Rockefeller and Carnegie are no longer the biggest kids on the block, they still wield a great deal of influence. Meanwhile, the Gates Foundation is still among the biggest in terms of resources, and it’s only set to grow in the coming years.

Nevertheless, as the role and reputation of the staffed foundation decline into the 2020s, we have to ask: Is that a welcome development?

I’d offer that while there’s a lot to critique about how foundations operate, there’s also an important role for them in this diversifying philanthrosphere, particularly if we acknowledge that philanthropy isn’t a purely distributive — or redistributive — project. As a vehicle for sharing money, power and knowledge to achieve practical ends, the foundation plays a critical role in American society that would be difficult to replicate.

Distinct role, distinct advantages

When philanthropy’s proponents wax lyrical about “civil society” and a “third sector,” they actually have a point. Philanthropy, and foundations in particular, can do some things that other organizations can’t (or won’t).

Unlike private businesses, foundations aren’t structured around a profit motive, and unlike government, they’re beholden neither to political outcomes nor to anywhere near as vast a regulatory framework. Foundations have often sought to generate and convey knowledge, putting them in league with academic institutions. But unlike academia, foundations have an explicit mission to apply that knowledge toward practical ends. This positioning gives foundations both the independence and the impetus to act on problems that might otherwise go unaddressed.

That role can imply risk-taking or “innovation” — concepts often trotted out by philanthropy’s defenders, despite the field’s frequent risk aversion. But, even (maybe especially) for less-flashy causes, foundations can bring to bear both their institutional knowledge and their relative stability to maintain viable nonprofit ecosystems. That’s true for any number of areas, from medical and scientific research to local journalism, policy advocacy, or addressing gaps in government.

In addition, local and state-based foundations are integral to maintaining civic infrastructure that people use and enjoy every day, like parks, schools, libraries, museums and arts venues. That may be humble stuff, but it makes a big difference in people’s lives and wouldn’t be as sustainable if it had to rely on sporadic gifts from individual donors.

While it’s possible that an LLC or a DAF could do much of the same, I would argue that the foundation’s restrictions — an endowment with an annual payout, legally mandated transparency, limits on what it can fund — help carve out this unique role.

Much of the distinction here comes down to the question of philanthropy’s why. If philanthropy merely exists to redistribute large fortunes, to “empty the safe,” then the traditional foundation may very well make less sense than a leaner, more streamlined operation. But if we’re talking about focused grantmaking around specific causes or challenges, a foundation, at its best, will arguably be more effective over the long run than a donor on their own — even one armed with great advice.

The Gates Foundation is a good example of what this looks like, despite our fairly frequent critiques. As it pursues its main mission to save and prolong lives in the Global South, it relies on the expertise of in-house staffers to forge the right connections and partnerships, and apply the right tools to the problems it’s trying to solve. A software guy like Bill Gates doesn’t have that expertise, and neither would most U.S.-based nonprofit consultants. What Gates felt he needed to do to make headway was to create a knowledge and implementation hub for philanthropic action. In other words, a private foundation.

More than just the donor

Now, it’s more than fair to criticize the Gates Foundation for its vast and democratically unaccountable sway over the global health field. It’s also fair to ask whether Gates was exercising his own monopolistic instincts when he established the foundation. However, you have to credit the Gates Foundation for playing at least some role in improving a vast number of lives around the world. And as Gates also notes, it has done so by both employing and funding “teams of experts who developed strategies, partnerships and innovations to reduce inequity.”

That brings me to another point in foundations’ favor, and it’s so obvious as to be overlooked. As least for medium- and large-sized concerns, foundations are more than just the donor. That’s clear in the case of the Gates Foundation with its thousands of staff and partners around the globe, but it’s also true for much smaller foundations.

Some of the most innovative and progressive grantmaking we track comes from private foundations whose original donors are long deceased. Luckily, many of these legacy funders were left the freedom to evolve their grantmaking, staff and boards to reflect current conditions. But even in cases of family governance or when the donors are still around, foundation staff shouldn’t be overlooked, especially since they’re often the ones nudging their boards and bosses in a more equitable direction.

Well, what about the argument that program officers and other foundation staff preside over a status quo of micromanagement and power-hoarding? That’s a fair point when it comes to the ways many, if not most, foundations have interacted with their grantees in the past. But that’s not the only way a foundation’s personnel can fulfill their roles and harness their expertise. And things may be changing, albeit slowly. Take the Ford Foundation’s enthusiastic embrace of unrestricted support, which my colleague Mike Scutari characterized as an opportunity to make grantmaking “less about obsessing over dollars and cents and quarterly deliverables, and more about collaboration, support and big-picture thinking.”

At the same time, it’s been interesting to witness philanthropic consultancies, collaboratives and fiscal sponsors grow and multiply, a trend that tracks with the rise of individual mega-donors and the relative decline of established foundations. The clear takeaway is that newcomers to philanthropy are encountering a need to replicate many of the functions and customs of the traditional foundation, even if they never establish an actual foundation.

In many cases, these newcomers are assembling their own teams of experts under LLCs or other more “flexible” funding vehicles. In a sense, places like Laurene Powell Jobs’ Emerson Collective are vindicating the foundation model even as they supplant it. They’re “shadow foundations” employing expert personnel to disburse money effectively. Yet they’re not subject to the private foundation’s transparency and payout requirements. They’re also probably more closely yoked to the individual donor’s whims, and more unlikely to survive the donor.

Even in the case of MacKenzie Scott, the boldest trailblazer on this new philanthropic frontier, a large team of consultants are advising and evaluating and communicating with recipients. There’s institutional knowledge being generated there, not only about how to disburse a multibillion-dollar fortune as general support, but also about how and where to target that support given the numerous challenges of the 2020s. That’s knowledge the wider philanthrosphere could do plenty of good with. Unfortunately, very few of us have any real access to that knowledge, and those who do can’t talk about it.

What do we risk losing?

At their core, foundations are aspirational organizations. They’re a kind of bet that it’s possible to overcome human venality and share money, power and knowledge.

I deliberately use the term “share” rather than “give away.” A defense of the foundation can’t coexist with a cynical view of all wealth holders as corrupt, and of all wealth as corrupting. To be sure, adherents to that worldview have plenty of examples at their disposal, and they’re likely to see foundations as part of the apparatus of wealth hoarding. They’re not entirely wrong there. Many also see it as the wealth holder’s duty to give up their fortune and power to those who’ve been deprived of it as soon as possible. Again, there’s much to be said for that viewpoint.

But the foundation posits that it’s possible to reach a middle ground between hoarding wealth and giving it all away at breakneck speed, where, regardless of how we feel about how the money was accumulated, it can still be transformed into a lasting force for good. It’s a space where institutional expertise and knowledge generation can coexist with and inform the quest for equity, a space where legibility, accessibility and patience can accompany the disbursal of large fortunes.

There are more than a few examples of foundations that fail to live up to that ideal. But it’s worth asking what we stand to lose if staffed foundations are eclipsed as philanthropy’s dominant model — and if, in such a future, civil society as we know it evolves into something less civil.